Rupert Murdoch tax win blows $880m hole in federal budget

Business reporter

A win in a long-running tax dispute by Rupert Murdoch's News Corporation will hit the federal budget. Photo: Tamara Dean

Rupert Murdoch's News Corporation has blown an $880 million hole in the federal budget after winning a long-running battle with the Australian Tax Office over deductions.

The ATO had refused to allow the deduction, which relates to a 1989 restructure within Mr Murdoch's media empire in which no money changed hands.

News Corporation defeated the ATO in the Federal Court in July and the money began flowing to the company over the Christmas break.

The payout represents a significant proportion of the $16.8 billion deterioration in the federal budget announced by Treasurer Joe Hockey in December.

It all but wipes out $1.1 billion in savings announced by Mr Hockey when he unveiled the mid-year economic and fiscal outlook on December 17.

Mr Hockey did not mention the payout at the time, instead blaming the budget's ''fiscal deterioration'' on a softer economic outlook, downgraded exports forecasts and the previous Labor government.

A panel of judges decided in favour of News Corporation on July 25, but the benefit did not immediately flow through to its financial accounts because the ATO was still able to appeal to the High Court.

The ATO's window to mount an appeal coincided with the federal election campaign, during which Mr Murdoch's newspapers ran heavily against the incumbent Labor Party and its leader, Kevin Rudd.

News Corporation's claim dates from 1989, when the company was in the grip of a debt crisis caused in part by its rapid overseas expansion.

News had negative capital of about $239 million, mostly owed to other companies in the group.

To clear the debt, News sold the company that owned its US operations and its 48 per cent in a subsidiary registered in tax haven Bermuda, that owned a share in the South China Morning Post to other members of the group.

The deal was financed internally, and no money actually changed hands.

Accounts filed by News Corporation earlier this month show that it received the ATO payout in December and January.

A News Corporation spokesman could not be reached for comment this morning.